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episode # 265

Forecasting an Economic Recovery and a Real Estate Slowdown with Bryan Yu

BC is ahead of its vaccination schedule and set for a summer of love but what does that mean for the larger BC economy and the red-hot real estate market? Does a return to “normal” mean a more “normal” latter half of 2021 for the real estate market or do we continue to burn ultra bright? Central 1 Credit Union’s Chief Economist Bryan Yu joins Adam and Matt to talk about real estate and the larger road to recovery in British Columbia. What does the future hold for BC and will we build back better? Where are the potential opportunities in the market? And what are the biggest risks?  Central 1 has gotten bold predictions right before. Tune in for the future!

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Episode Summary


Please tell us about yourself.

I am an economist at Central 1 Credit Union. I was born and raised in Winnipeg, came out to BC for schooling and am now living in Vancouver with my family. 

I did downsize once we had kids to have a better quality of life with the amenities in Vancouver. I wanted to cut down my commute time. This was pre-pandemic so now some of those benefits aren’t there. But living in Vancouver is still fantastic! 

How’s the BC economy doing?

We were pretty hard hit by the pandemic and we’re seeing industries, like tourism and hospitality, that continue to struggle. But we’ve also seen recovery in certain areas, like commodities and technology. We’re just off of where we were pre-pandemic in terms of employment. So it’s not great by any means, but it could be a lot worse. 

How does BC compare to other provinces? Why are we performing better?

We’ve had a bigger hit, especially given our reliance on tourism. But we didn’t have the drop off of oil prices like Alberta did. And we haven’t had the same restrictions and lockdowns as Ontario and Quebec. Our case counts are still rising but overall we haven’t been as restricted or hit as hard. 

We all underestimated the effects of the pandemic. Can you tell us a bit about the housing market? Have you been surprised by it over the past year? 

Back in March 2020, we all assumed the market would pull back. But once we got through that period, and with the low mortgage rates, we’ve seen a massive uplift. Most of us underestimated the strength of underlying demand for home ownership. 

CMHC’s forecasts have been noticeably off where the market is going. What are your thoughts on where those forecasts went wrong? 

It’s been more than a decade since I worked at CMHC but there’s likely a lot of risk management in those forecasts. There was some merit in their forecasts but no one was predicting the drop to the same extent as CMHC. Forecasting is hard; it’s not an exact science. 

Speaking of forecasts, can you tell us about the recent economic briefing you just published? What is 2021 looking like? 

The numbers are showing a roughly 6% increase relative to normal years. We all know prices have risen substantially over the last few years. Mortgage rates are low and people have more buying power, so that’s coming into the market. But we’re heading into an affordability crunch, if we’re not there already.

We’ll see demand rotate back to the condo market, especially as vaccines roll out. Mortgage rates may start to rise but will still stay relatively low. People will go back to the office, will go back on vacation and will have less time to search for a house. So the demand factors may lessen throughout the year. 

Let’s talk about inventory. It feels like there is a real lack in the market right now. What is leading to that?

It’s a long term issue. People do hold onto their homes; there aren’t that many single family homes available. It’s a vicious cycle in that you can sell your home, but then where will you move to? There’s more inventory in presales or apartments, but even those numbers aren’t very high. There is still a fear during the pandemic of having people in your home. 

One thing we talked a lot about in 2016/2017 was a real estate bubble. It doesn’t feel like that right now. Does Vancouver real estate make sense to you? Is “bubble” the right word? What risks do you see? 

There was a view in 2016/2017 that the stress on the market was purely due to external forces. It’s when we saw the vacancy and foreign buyers tax come in. Today we’re not talking about bubbles. It’s largely domestic demand now driven by low interest rates and pandemic factors, like wanting more space. It’s a very different environment today in terms of what is driving the market. 

We should be wary about this – prices are prices. If that’s driven by low mortgage rates and low inventory, there’s a risk in that. But as long as mortgage rates remain low, which is what we’re expecting, there will be support for pricing. As I mentioned, I think demand for condos will increase, especially as borders open and students come back.

Will we see policy implemented or something else affect the momentum of this market? 

Typically high price cycles do lead to policy action. Is there room for policy to cool the market on the demand side? Maybe, but it’s fundamentally a supply-side issue. So there may be some policy changes ahead. The stress test is still in play but it hasn’t held back the market too much. 

Another risk is that as people move into the suburbs, they are expecting to work from home permanently. So there’s a risk that employers may want to bring people back into the office, and that could roll back demand. 

We saw a lot of downward pressure on condos, especially in the downtown area and on smaller spaces. Do you think we’ll see a resurgence this year?

I do think there’s a rebound coming in these markets. Over the past year, students have not been coming in, and business travellers haven’t been working from Vancouver, so the demand for those downtown properties has declined. But as the vaccine rolls out, we expect this demand to recover substantially. 

The downtown core has become a dead zone when workers aren’t there, so you see that in housing demand as well. But as things normalize, I believe downtown Vancouver will be a much stronger real estate market going forward. Big companies are still planning to move into downtown Vancouver, like Amazon and other technology companies. The office will probably look a little different; I don’t think remote work is going away. But people may be expected to be in the office a few times a week.

What is your take on the real estate market and the economy over the next few years? 

We have an outlook of 4% growth of the economy over the next few years. It’ll be an ongoing recovery, where the knowledge sectors will continue to grow and it will take a bit longer for tourism and hospitality to bounce back. It’ll be a work in progress. Longterm, we’ll be relying more on the knowledge sectors like technology and movie effects. 

For the housing market, we’ll probably still see home sales around the 20% range. On the pricing front, we were predicting a 5-6% increase but I think that will be even higher by the end of the year. I thought it’d be going down a little bit by now but that’s clearly not the case. Long term, I’m still quite bullish on where we are. We’ll see fluctuations, including a 10-15% decline, but Vancouver is a strong market long term. People will flock here and land is scarce, so that will put pressure on pricing. 

Do you have a favourite region that is a growth area of the province? 

I still think Kelowna is a good area for young families with relatively affordable real estate. Even within Metro Vancouver, people will flock towards affordability. Long term, we’ll see companies building secondary offices in places like Surrey, that will ensure those areas see continued growth. 

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